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Deal activity in the retail, ecommerce and consumer sector fell by a third by volumes in 2023 after investors turned cautious amid high inflation and several companies having salary freezes and workforce reductions, a Grant Thornton Bharat report has said.
The number of deals through mergers and acquisitions and private equity funding in the consumer sector dropped to 331 last calendar year from 514 a year earlier while the drop in value was 9% lower at $8.6billion against $9.3 billion largely led by ecommerce sector even as textiles, durables and retail sector saw higher deal count, said the report shared exclusively with ET. Profitability remained a concern for some online players, which has resulted in lower investor confidence.
“Investor’s sentiment is cautious and has been the underlying theme throughout the year. There has been a recalibration of valuations within the industry as intensifying competition and investor risk aversion converge. For some companies, private equity investors are prioritising profits, gross recovery plans, cash burn reduction, and corporate governance even within the existing portfolios,” said Naveen Malpani, Partner, Grant Thornton Bharat.
Deals within ecommerce nearly halved by value to 3.3 billion while the number fell 70% to 124 deals. Apparel and retail, however, saw deal transaction surge seven times, led by Reliance Retail which raised nearly $1.6 billion from Qatar Investment Authority and Abu Dhabi Investment Authority. Lenskart also received a funding of $500 million during the first half of 2023, followed by M&G Plc, Lightspeed Venture Partners and DST Global buying a stake in Udaan last month.
Direct-to-consumer (D2C) investors expect that conscious fashion & apparel, travel & lifestyle, and home & decor categories are ripe for disruption. The expenditure in such categories is not only expected to rise in 2024 but is also projected to become a dominant trend throughout this decade. Also, D2C is believed to have completely transitioned to being omnichannel.
While the pandemic saw a lot of consolidation in the consumer space on the back of roll-up commerce, performance failure has resulted in a market that is very risk-averse, said experts.”Valuations in consumer brands have been corrected sharply in the past two years and VC investment has been increasing since the past quarter. A lot of startups are growing sustainably and hitting profitability which will garner interest from PEs and large FMCG companies in 2024,” said Rithish Kumar, co-founder, PeeSafe.
The mergers and acquisition space saw large deals including Walmart buying a stake in Flipkart and Caratlane’s acquisition by Titan. There were also some high-value M&A deals in the personal care and textiles, apparel, and accessories segments last year. For instance, Godrej Consumer Products acquired Raymond Consumer Care Ltd while TCNS Clothing Company was bought by Aditya Birla Fashion Retail.
“We foresee PE investors adopting a hands-on approach, actively managing operations, and prioritising certain metrics for performance assessment. In India, e-commerce companies are increasingly turning to M&As to gain an edge in the competitive market. This includes leveraging economies of scale, expanding reach, boosting tech capabilities, and snagging specialised expertise. The companies are merging or buying out to streamline operations, cut costs, and dominate the market,” added Malpani.
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